A Mean Field Game of Optimal Portfolio Liquidation

Abstract

We consider a mean field game (MFG) of optimal portfolio liquidation under asymmetric information. We prove that the solution to the MFG can be characterized in terms of a forward-backward stochastic differential equation (FBSDE) with a possibly singular terminal condition on the backward component or, equivalently, in terms of an FBSDE with a finite terminal value yet a singular driver. Extending the method of continuation to linear-quadratic FBSDEs with a singular driver, we prove that the MFG has a unique solution. Our existence and uniqueness result allows proving that the MFG with a possibly singular terminal condition can be approximated by a sequence of MFGs with finite terminal values.